Hitting the wall

Running a fast-growth company can be exhilarating. But when growth gets out of control, it can be a desperate, intensely emotional, painful, and often public experience

Hitting the wall. we've all heard about it. Though it happens in different ways, it has one overwhelming characteristic: you're out of cash. Your company is in trouble. There's a good chance it won't survive.

The mystery is, since every one of us knows about the wall, why do so many of us still hit it? The answer is twofold: first, in emerging high-growth companies, advance warning of disaster is seldom accompanied by warning bells and whistles that are recognized by management; second, the same qualities that make early-stage entrepreneurs so successful at growth often impede the management of that growth. That's the real pity, since hitting the wall is always painful . . . and unforgiving.

I know this personally.

In 1988 our company hit the wall and hit it hard. Our specialty-food business ended the 1988 fiscal year with $48 million in revenues; more than 20 retail units operating in Boston, New York City, Atlanta, and Chicago; and more than 1,250 employees. For a few brief moments our potential seemed unlimited, and we had the world at our feet.

We'd come a long way from our beginnings. In late 1983, at the age of 29, I helped form J. Bildner & Sons. Our store concept was clear -- a format that blended excitement and theater with a selection of the highest-quality perishable and nonperishable foods. Customers flocked to our stores, and there was no shortfall of complimentary press. Later, in 1986, we fueled our growth with a public offering.

And then in 1988 we hit an immovable object called the wall, which changed the world for us instantly and permanently. Cash had run out. Our New York City operations were out of control (one sure sign was the time our employees there rolled a one-ton safe down two flights of stairs and through two glass doors so they could steal the money!), and our capital and lease commitments in those and other, remote markets were becoming unmanageable. Then, in mid-1988, we suffered catastrophic losses from those operations, which eroded our market value and -- where it counts most -- our customer loyalty, as inventory began to dwindle.

We went from hero to villain, from genius to dunce, and the world turned upside down. Most newspapers did our corporate obituary and, with the benefit of hindsight, pointed out in painful detail every mistake we had made: too much capital; too much growth; too little experience. The Wall Street Journal even ran a head shot of me. Peter Lynch gave us three pages in his book One Up on Wall Street. So when I speak of the wall, I know a lot about it.

My wife remembers my anxiety every time another newspaper article was due to appear. She recalls my leaving the house before dawn (just behind the newspaper-delivery man) so I could scoop up my neighbors' Boston Globes before they had a chance to read them. She also recalls my returning home an hour later, shaking my head, after I realized that those same neighbors would just read the same story once they got to work, or in the Boston Herald. But that's what it's like -- a desperate, intensely emotional, painful, often public experience. And when you hit the wall, you usually hit it alone. Those who helped you rise usually have a new spin on why you're there and they're not.

In rapidly growing companies, hopes are always focused on future performance. And the language from one company in trouble to the next is remarkably similar:

· "We're about to get the biggest contract we've ever had."

· "This new product can carry the company."

· "This budget is really conservative."

· "Our revised sales plan shows that we'll be profitable next month."

The reality, it seems, is always clear to everyone but the chief executive. The next month is usually not any different from the one before, nor does the budget change the company's underlying problems.

Then, too, rapid growth itself -- too many new locations, new products, new people; too much or too little capital; and always too little investment up front in financial systems and controls -- makes everything worse. Those of us who have taken our companies public know that a growing dependence on financial markets and the requirements they make on our business strategy add to the problems, as well. In our company, hindsight proved that fulfilling those requirements was at odds with the harsh reality of just how many new people and units could be brought on line in any period of time. Don't get me wrong: we can't simply duck responsibility by blaming investment bankers and public markets -- ultimately, it was our choice that brought them to the table in the first place, and it was our decision, not theirs, to enter the markets we chose at the growth rate we thought we could sustain. But a healthy skepticism on both our parts would have helped us manage our growth better.

The tragedy is that few companies about to hit the wall just nick it or bump it. Most crash right into it, as we did, often realizing the truth only after the fact, when something major -- like cash -- becomes an emergency. And most companies hit the wall at the peak of their sales growth and just as their access to capital is drying up, a lethal combination.

So how do you know when you're about to hit the wall? Listen to the people you'd like to avoid because you don't want to hear their advice. I vividly recall my first meeting with a turnaround consultant. He was the first person to force us to deal with our situation. Seek people outside your own circle. Ask them about your expansion strategy and your new-product plans, and most important, have them challenge your cash-flow projections. And before you dismiss their input as useless because you're sure they don't know your industry, your product, or your people, think about what they've said. Their opinions could be validated by other events such as diminishing cash flow, recent turnover of good people, more-frequent surprises (both good and bad), expanding general and administrative allocations and additions, and your own increasing distance from the core of the business. When you find yourself spending more time with your chief financial officer and lawyers and bankers than with your key operating people and salespeople, which I found myself doing toward the end, you know you're getting close to the wall.

Other sure signs are hearing yourself tell others that you visit your operations more frequently than you actually do; hearing others describe you as "visionary"; and walking down your company's halls and seeing lots of framed articles and awards (usually from a year or two ago) that have little to do with the product or service that's the source of your company's revenues. Finally, if you find yourself feeling embarrassed when others refer to you by what you do, you know you're in deep trouble. In my case, a friend of mine would refer to me as a sandwich maker. I wasn't a sandwich maker, I thought, I was the CEO of a national specialty-food retailer. Well, the truth is, I was a sandwich maker. When we try to escape from our own businesses, we need to be especially tuned in to the reason why. We need to take to heart the views of outsiders. As someone once said, "If 10 people tell you you're drunk, it's time to fall down."

The best way to survive the wall, of course, is to avoid it altogether. A lot of companies do that by managing their growth up front and relying on internal, not external, sources of capital. But even if you do run smack into it, the experience doesn't have to be fatal. When you're in a company that hits the wall, it's like being the first on the scene of a major accident -- there's a lot of noise, panic, and misinformation. Calming everyone down and assessing the situation clearly are the first steps toward survival. In our case, we quickly assembled customer and noncustomer focus groups. Sitting behind a one-way mirror and hearing unedited opinions about our company and its products, services, and leadership was a powerful way to begin developing a plan to deal with those perceptions.

One thing most people, including me, never accept quickly enough is that life is never the same after you hit the wall. A realistic scaling back of both your company's and your own personal financial plans makes it much easier to survive. By the time it was over for us, the company was a shadow of its former self. Today we still have a small presence in the Boston market. True, we hit the wall with about as much force as you can imagine, but we've survived for seven years after that initial impact.

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James L. Bildner is the founder of J. Bildner & Sons Inc. and is now a partner in Argus Management, a turnaround consulting firm based in Natick, Mass.